CNB announced that it will set the limits for dividend payments conservatively for supervised institutions, in accordance with the ESRB Recommendation dated December 15, 2020. However, CNB will assess institutions' proposals for dividend payments individually, with focus on reviewing capital adequacy, risk profile, business model, and other significant factors. CNB will also discuss each case within the college of supervisors of the relevant financial group before making its statement. CNB assumes that financial institutions will come up with possible proposals only after they have the audited results for 2020 available.
Based on the initial ESRB recommendation dated May 2020, financial institutions should refrain from dividend payments until the end of 2020. However, later, another ESRB recommendation dated December 15, 2020 extended the horizon of limiting the payment of dividends by financial institutions during the COVID-19 crisis until September 30, 2021. This revised recommendation gave financial institutions the option of making a partial dividend payment, provided that they proceed very prudently and that the payment does not exceed the conservative limits set by the supervisory authority. ESRB requires national financial market supervisors to set limits on the concerned institutions, considering the need to maintain their capital at a sufficient level to limit systemic risks and to enable each institution to contribute to the economic recovery. ESRB also expects the national supervisors to ensure that the overall level of dividend payments by supervised institutions is significantly lower than in the years before the COVID-19 crisis.
Keywords: Europe, Czech Republic, Banking, Dividend Distribution, COVID-19, Regulatory Capital, Basel, Systemic Risk, CNB
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